Cracks in the Dam

I’ve been aware of the peak oil theory for a number of years now, and I have been convinced that this theory is slowly but surely turning into a fact. A decline in the availability of oil and the connected rise in pricing will mean the end of the current ‘modern, (post-)industrial lifestyle’ that many people around the globe either are enjoying or aspire to do so.

The end of this culture will probably result in a series of shocks to global society that are unpredictable at best. One of the end results of the reduction of available energy supplies will be the disruption of the fiat money system, which relies on expansion (both economic and fiscal) to operate. Entities who have major amount of their assets tied up this system stand to lose those assets through depreciation or default. So those people who are in a position to profit from the continuation of the American Dream have done what they could to censor the story, or failing that, ridicule peak oil proponents as nuts, cranks or conspiracy theorists.

Well, times are changing, and it’s pretty damn obvious even to the most clueless American that something is going on. Gas prices are rising fast, as are food prices. Pricing for everything else will be heading north as well as producers and transporters will be forced to pass on higher costs to the customer. People are waking up to the fact that the salad days of retail therapy and gorging on cheap, disposable crap are coming to an end for most of us. We’ll be more worried about getting to work and putting food on the table rather than pondering which Carribean Island we’ll be vacationing at this winter. Hell, a ‘big family trip’ might now be a road trip to a regional location, if there is a trip to be taken at all.

With this dawning awareness that the fecal matter is approaching the fan, more and more stories are being published in which high oil prices are now a fact of life rather than a temporary problem.

Consider this listing:

As I’ve written about recently, President Bush has asked Saudi Arabia to increase their oil production as a way to lower crude oil prices. He did this in January, and again this month. In both cases, he was politely yet firmly told no. This could mean a few different things: the Saudis like raking in higher prices for their product (doesn’t everyone?); that they are unwilling to risk damaging their oil fields by overproducing them; or that they simply cannot bring any more oil online.

After being rebuffed for a second time, Mr. Bush changed his tune and has told the Middle East that their oil reserves are running out, and that they had better figure out some other way to make money and keep their corrupt upper classes in power while facing a growing poor underclass.

Fortune Magazine has side-by-side reviews of the Pontiac G8 sedan, a muscular gas-burner, versus the Nissan Cube, a small, boxy hybrid. The Cube was described as “homely, utilitarian and slow – and we all ought to get used to it, because that’s what most of us are going to be driving in the future.” That’s kind compared to the G8 – “powerful, exciting, fun to drive – and as obsolete as the buggy whip.” Shocking news to some, but refreshing honesty to me.

One of the first documents that convinced me the US government knew about peak oil theory and was suppressing it was the Hirsch Report. Written in 2005, this report laid out the facts of the world oil situation and made some depressing claims about our ability to cope with the societal changes that diminishing oil supply will inflict on the world. The actual report can be downloaded from here. The main author of that report, Robert Hirsch, was interviewed on CNBC yesterday. There’s a 4-minute clip of the interview that is worth checking out here.

Hirsch’s interview is especially revealing since it has several graphs explicitly labeled ‘peak oil’ in relation to production in the US, Texas, Norway and the UK. Mr. Hirsch also serves up some choice quotes:

The prices that we’re paying at the pump today are, I think, going to be ‘the good old days,’ because others who watch this very closely forecast that we’re going to be hitting $12 and $15 a gallon, and then, after that, when world oil production goes into decline, we’re going to talk about rationing,

There’s also this one:

There’s no single thing that’s going to solve this problem, because it’s as massive as one can possibly imagine.

No soft-pedalling there… the last quote was a reply to some ex-Federal Reserve guy who made a typically ignorant answer that the problem would be solved if the US lifted all of it’s drilling bans. The extra oil would be welcome, of course, for the few years it made a difference.

Americans are starting to figure out there’s a big problem with oil, and in my opinion the media are trying to release the story gradually to try and inoculate American citizens to the idea that the days of cheap energy and cheap food are over. We’ll see how effective this is. I still think there will be a lot of pissed-off Yanks upset that they can’t afford to fly to Disney World anymore, or that the price of their favorite extruded corn snacks have jumped by 100%.

A personal anecdote: my wife was talking with a neighbor lady last night at my son’s T-ball game. Her family was going to Disney World in a few months, and she mentioned that when she bought the tickets over the winter, they were around $350 per person, which seemed high at the time. She checked the other day, and those same tickets would now be running between $500-$800 each, depending on the number of connections and time of day. And you have to buy your meals on top of it. Think this will put a crimp in the hospitality industry? And this is just the start of what’s coming.

Another anecdote: I was chatting with a friend of mine who lives in Sioux Falls, SD. He is getting ready to purchase a scooter to commute to work on (~15 miles each way), since gas prices are starting to cut into the family budget more than they expected. It’s only useful 8-9 months out of the year, but he still seems to think it’s worth it. Had I been more on the ball, I would’ve asked him why he didn’t just get a bike. 15 miles each way would be decent exercise.

Changes are coming our way. We can argue over what caused them, but it’s becoming more and more obvious that the lifestyles of many of us will be altered. We can ignore the facts we see in front of us, or we can try to hide our heads in the sand. Keep in mind that putting one’s head in the sand is also an invitation to get ones behind kicked… hard.